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Why do Republicans ignore the evidence?

The Myth of Government Intervention Being Bad

Okay, so strike one against one Republican sacred cow -- the myth that government intervention in the economy is always bad. Now let's examine the next sacred cow: The myth that a rise in the price of a good will always reduce the demand for that good.

The Myth of Perfect Elasticity

Now let's look at McDonald's. McDonald's is in business to make the most profit possible. What this means is that they minimize their employment costs as much as possible. What this means is that they already have the least number of people on payroll as possible -- if they had an extra person, they'd fire him so they could make more profit. Okay, so the minimum wage goes up. Is McDonald's going to fire someone? No, if they could fire someone they already would have. What they're going to do is raise the price of hamburgers. Does that mean that fewer hamburgers will be sold? Perhaps, but the demand for hamburgers appears to be almost as price-inelastic as the price of bread -- we have so much wealth in our economy now that the average middle-class family will purchase as many hamburgers at 10% higher prices as they did at the original low price. After all, the difference between a $1.75 Big Mac and a $2.00 Big Mac is almost nil when you look at a middle class income of over $5,000 per month. It may be possible to hike the price of a Big Mac to the point where people reduce their consumption of Big Macs, but current timid increases in the minimum wage are nowhere near that point. So what we've accomplished, then, is transfer income from the middle class to the lower class.

But we've accomplished more than that: we've enabled a large swath of people to move from being subsistence buyers (who buy only what is necessary to survive) to being active consumers. This money that we transferred to these people via government intervention does not disappear. Rather, it gets spent buying consumer goods. Which means that companies making consumer goods can make more profit and hire more people and invest more money in factories, which in turn means the machine tool manufacturers who sell the tooling for factories make more profit, and hire more people, and all those newly-employed people can in turn buy more goods and the whole thing turns into a positive-feedback mechanism. We raised the price of a few low-price service items, and in return ended up with a huge feedback effect leading to more consumption, more investment, and more wealth.

In other words, the Republicans are either a) mistaken, or b) liars if they state that a minimum wage hike automatically causes job losses. Usually the exact opposite happens. Our country's history over the past 20 years shows that whenever the minimum wage rises, our country's economy gets jump-started to new heights and much more wealth is created for the middle class than was transferred by the minimum wage hike. This isn't a matter of my opinion. This is a matter of fact. Go read the Statistical Abstract of the United States yourself. Look at median income. Look at unemployment figures. Look at the years that the minimum wage was raised and look at how median income rose and unemployment plummeted after the economy adjusted to the new price levels (sometimes it took 10 or 12 months, but the effect is always there). No matter what kind of theoretical bull you want to pull, you can't argue with facts unless you're either an idiot -- or a blatant liar.

Now the next question is this: Could the Republicans be right about the possibility of there being a minimum wage hike that DOES hurt the economy?

Capital vs. Consumption

There are two primary sources of capital in today's economy: the stock market, and the loan market. The stock market relies upon there being people and/or companies with excess capital who buy portions of other companies in exchange for an ownership share. It is primarily middle and upper class people who indulge in the stock market. Less than 5% of investers account for 95% of the money invested in the stock market. Less money available to pursue stocks (because some of that money has been transferred to the lower class via a minimum wage hike) means that the price of shares declines, which means that companies are less able to raise money on the stock market.

But this relies upon a very big assumption, an assumption that Republicans either ignore or simply refuse to state because it would undermine their argument. It assumes that the amount of wealth in the economy is constant. If a minimum wage hike resulted in there being more goods and services in circulation due to people now being able to buy consumer goods rather than just the minimum needed for bare survival, it is most likely the middle and upper classes who would benefit the most from that increase in wealth. After all, if your company has record profits, either your company is going to further invest those profits, or you as an officer will grant yourself a raise (and who could complain?). There is absolutely no (zero) evidence that minimum wage hikes in the past two decades have decreased the amount of capital available for investment in the stock market. To the contrary, over the past 10 years in particular there has been massive and continuous gains in the amount of capital available for investment in the stock market, albeit with a slight hiccup over the past year. This corresponds with 10 years of increases in the minimum wage.

Availability of capital for loans is even less affected by minimum wage hikes. Very little money actually exists as cash. Most money exists as deposits in banking accounts. For simplicity's sake, let's treat every bank in the United States as if it were part of one bank. John Garcia gets a $10 raise because of a minimum wage hike. This $10 is taken out of The Bank by John Garcia when he cashes his paycheck. In celebration, he goes to Wal-Mart and buys a new pair of shoes. Wal-Mart deposits that $10 right back into The Bank. Wal-Mart does an electronic funds transfer to the account of the shoe manufacturer to get more shoes. That money is *STILL* in The Bank, available for loan. In other words, all that happens, as far as capital available for loan is concerned, is that a minimum wage hike moves the money from one account to another -- but it's still there in the bank available for loan.

Now, lets assume that The Bank loans out 90% of that money that's currently in all the accounts in The Bank. Where does that money go? Right back into The Bank! There is a multiplier effect involved here, where each loan, aside from creating capital (by allowing creation of wealth in terms of goods and services), also gets deposited right back in the bank and in turn can again be loaned out. The extent of the multiplier effect depends upon the reserve requirements and the extent to which those loans are put to use producing wealth. A minimum wage hike does not affect the total money available in the banking system, it merely shuffles it a bit between accounts.

So basically, the only way a minimum wage hike could actually hurt the economy would be if the rise in prices of low-cost consumer services (such as fast food hamburgers) exceeded the elasticity threshhold and caused a decrease in demand. However, as long as we keep the rises moderate, the wealth created by moving people from survivalism to consumerism means that the elasticity threshhold moves further and further up the scale. My $3 fast food meal in 1982 actually costed me more, relatively speaking, than my $5.50 fast food meal today, because of my vastly improved financial condition due to the improved economy. But if you'd asked me in 1982 whether I'd buy a fast food meal at $5.50, I would have told you that you were nuts.

Why not just give them the cash?

Conclusions and Conspiracy Theories

Part of it is probably ideology. The more libertarian wing of the Republican Party does not agree with the notion of government intervention in the economy. How they square this with the massive government interventions that benefit them (i.e., government protection of private property and massive intervention in the money supply and securities regulation) is unclear. Perhaps they don't think about it.

Part of it, I believe, is pure spitefulness. I suspect this is the case with most of the working-class Republicans, those who are making barely more than the minimum wage. They view the fact that they're now working a $10/hour job as a sales rep as meaning they're somehow "better" than the guy making $6/hour down at Burger King. They don't want "their" money spent to better "those" people, even if raising that guy's wages to $6.30/hour means that they can sell more widgets to that guy. There are people who will cut off their own hand from sheer hatefulness. See Serbia, an entire country that would rather kill their neighbors than work with them to increase the wealth of the whole region.

Mostly, though, I think most of the opposition is just plain not thinking on the part of the majority of Republicans. Most Republicans appear to accept whatever their ideologues tell them as pure unvarnished truth, nevermind evidence. If Rush says it, it must be true. Republican ideologues must invent a threat every six months or so to keep their audience numbers up or make sure that they're re-elected. I believe that most of the opposition to moderate minimum wage hikes is based on pure practical politics. H.L. Menken once wrote, "the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary." Much as Richard Nixon and Joe McCarthy invented the "red scare" to improve their political careers, Republican ideologues today invent new scares in order to pad their pockets and insure the elections of themselves and their comrades. The minimum wage is just one such convenient hobgoblin to toss out onto the burner whenever audience numbers slip or polls show a drop in popularity.
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